Serbia approves job-cutting 2015 budget to win IMF deal

A construction crane stands as the city skyline stretches out beyond Belgrade, Serbia. The country’s budget targets a consolidated deficit at 231.9bn dinars (€1.9bn), or around 6% of national output. It was drafted in line with a €1bn loan deal with the IMF and sets revenues at 924.4bn dinars and expenditures at 1.11bn.

 Reuters/BelgradeAfter 19 hours of debate, Serbia’s parliament adopted a 2015 budget early yesterday intended to slash spending on pensions and unprofitable public industries to secure an IMF loan. The budget targets a consolidated deficit at 231.9bn dinars (€1.9bn), or around 6% of national output. It was drafted in line with a €1bn loan deal with the International Monetary Fund and sets revenues at 924.4bn dinars and expenditures at 1.11bn. The deficit, which reached more than 7% of gross domestic product (GDP) in 2014, includes spending by municipalities and some state-run firms. The Serbian dinar gained 0.6% after the adoption of the budget, trading around 121.1 per euro at 0950 GMT, and dealers said investors would take some reassurance that the government was finally acting to slim down the role of the state. This should also help Serbia, which struggled to shed pariah status for almost a decade after the wars of the 1990s that broke up the former Yugoslav republic, in its efforts to join the European Union. It has failed to attract significant foreign investments, apart from a Fiat car factory, during years when governments allowed murky privatisations and failed to cut bureaucracy and tackle corruption. The unemployment rate is 25%. The 2015 budget sets borrowing at 706.6bn dinars, partly to cover the costs of closing down loss-making state-run firms and shedding jobs in the bloated public sector. The general government deficit is seen at 4% of GDP. For the first time, it will include spending on sovereign guarantees for state companies that were previously listed as non-budgeted spending. The budget could prove a landmark, said Sasa Djogovic, an economist with the Belgrade-based Institute for Market Research (IZIT). “It is a major swing from previous budgets as it targets problematic spots in the economy, namely the public sector,” he said, but warned the pace of reform posed significant economic and political risks. During the debate, marred by bickering between opposition deputies and the parliamentary majority led by the centre-right Serbian Progressive Party, Finance Minister Dusan Vujovic said the budget should allow the country to emerge from crisis. “This budget demonstrates responsible fiscal policies,” he said. It could mean cutting up to 27,000 jobs in the public sector, of which about a third will come from redundancies in pursuit of €600-650mn ($735-795mn) in savings.  Serbia’s economy is in recession and is seen contracting 2% this year mainly due to devastating floods in May which inflicted over €1.5bn of damage. It is forecast to contract 0.5% next year. As part of the 2015 budget, the government plans to cut most of its financial support, amounting to around €1bn a year, to hundreds of loss-making state enterprises. In its three-year deal with the IMF, Serbia pledged to save €1.3bn by 2017 to cap its public debt, pushing 70% of GDP this year. As the first step, Prime Minister Aleksandar Vucic’s government has already cut some pensions and public sector salaries from November 1.